Are Manhattan’s Luxury Townhouses Losing Their Luster?

Location and condition are factors in determining a townhouse’s appeal

The Park Avenue townhouse housing the nonprofit Queen Sofía Spanish Institute sold for $25 million at the end of last month, according to public records, falling $23 million short of its original listing price of $48 million in October 2014.

Meanwhile, a nearby townhouse at 68th Street, owned by artist Abby Leigh, sold to real estate developer ADCO Group last week for $20.4 million, down $17.6 million from the $38 million she asked in March 2015.

In these two instances, both sellers had to concede almost half of the asking prices. Listing agents at both townhouses declined or didn’t respond to requests to comment on the price cuts.

And while these two examples could be seen as a bellwether of Manhattan’s townhouse market, real estate experts and veteran agents say that may not be the case. Whether a townhouse is selling at a decent premium or a deep discount depends on its location, and more importantly, its condition, they say.

Two Tales in a Town

Leonard Steinberg, president of brokerage Compass pointed out that townhouses usually are one of two extremes: completely new and those in need of renovation.

“Those that are in mint, brand-new condition sell for a huge premium and rightfully so: Anyone who has ever done a townhouse renovation knows the enormous cost of both money and time,” Mr. Steinberg said.“Then there are all the other houses. Those that need a renovation. They sell for a big discount now.”

Dolly Lenz, founder of the eponymous brokerage Dolly Lenz Real Estate, agreed. “The right townhouse is still considered a trophy property that’s irreplaceable,” she said. “It can sell at a premium. On the other hand, if it’s not in perfect condition, buyers have to spend more money to gut it or convert it from commercial use back to a single family house.”

Location is Key

Another factor is location. Within Manhattan, buyers’ interest is seemingly shifting from uptown to downtown. There is an oversupply of townhouses north from Midtown, particularly on the Upper East Side. Comparatively, townhouses in the West Village are in greater demand while inventory is lower, said Ms. Lenz.

In July, Ms. Lenz sold a West Village townhouse for very close to its listing price of $28.9 million. The townhouse at 278 W. 11th St. was owned by Rupert Murdoch, executive chairman of News Corp., which owns Dow Jones, publisher of Mansion Global. It was the most expensive townhouse transaction in the third quarter, according to Jed Garfield, managing partner of Leslie J. Garfield, a brokerage specializing in townhouses and small buildings.

The Upper East Side and West Village are among the prime townhouse neighborhoods in Manhattan. On the Upper East Side, there were 41 townhouses on the market in the third quarter; 13 changed hands with an average price of $8 million. The price per square footage dropped 10% from the same period last year to $1,800.

During July to September, there were 17 townhouse on the market in the West Village, nine of them sold with an average price of $14.4 million and average square footage price of $2,593.

Aspirational Pricing

The deep discount of the recent townhouse sales might also fall into a so-called “aspirational pricing” phenomenon, experts say.

Townhouse properties are generally skewed to the high end of the market where conditions are weakest and many listings are “aspirationally” overpriced, said Jonathan Miller, president and CEO of real estate appraisal and consultancy firm Miller Samuel.

“Now that these conditions have been in place for more than a year, sellers are capitulating to the actual market conditions and reducing their prices to actually sell,” he added.

“The discrepancy between asking price and sale price reflects some mispricing practice here,” Mr. Garfield said. But this doesn’t necessarily exclude the possibility that buyers could scoop up a bargain sometimes, he added.

Alternatives Are Increasing

In the meantime, townhouses are losing ground to other alternative luxury living in New York, said Ms. Lenz. In past years, the ultra wealthy chose townhouses because the luxury condos generally weren’t built big enough, but now there are huge luxury condos and co-ops targeting this group. “For properties valued between $20 million and $50 million, there are a lot more choices and competitions,” she said.

And there are other advantages these days in purchasing in a condo or co-op, Ms. Lenz said. “Townhouses don’t have amenities such as gyms, concierges, garages and other full luxury lifestyle perks the new high-end towers offer,” she said.